Spain's government will approve an increase in the retirement age on Friday, raising it to one of the highest in Europe as it tries to convince markets it can reform its economy and cut its deficit, according to Reuters. The government announced on Thursday it had reached a deal in principle with unions and employers under which most Spaniards will retire at 67 rather than 65 at present. The reforms will have no effect on the budget before 2015, but mark progress in overhauling an economy with weak growth prospects and the euro zone's highest jobless rate. Data on Friday showed unemployment at 20.3 percent in the fourth quarter of 2010, its highest in 13 years. Prime Minister Jose Luis Rodriguez Zapatero is under pressure to show investors he is committed to structural reforms and to cutting a public deficit of just over 9 percent of gross domestic product in 2010, to avoid being forced into a bailout like Ireland and Greece. The pension deal won the approval of unions and employers after months of talks and included the concession that workers who have paid into the pension system for 38.5 years will be allowed to retire at 65, among others. Some economists expressed doubts, however, that the reform goes far enough. "My only worry is that whenever there is a crisis in Spain, there is mass early retirement. This weighs very heavily on the pension system," said Robert Tornabell, Economics Professor at Barcelona University ESADE. "Every sector is firing staff, from banks to the media, and instead of making people unemployed, it forces thousands into early retirement." Markets showed little reaction to the news, and the key spread between the yield on Spanish ten-year debt and equivalent German bunds was around 217 basis points, down a touch from 217 bps on Thursday. Media nevertheless hailed the accord, which suggests trouble-free passage through parliament. It was sealed after a period of confrontation with unions that damaged the image of the Socialist government, currently trailing around 15 points in opinion polls. "There is no doubt that the new legal framework (for pensions) is more realistic and will help the Social Security to keep its books balanced, something that today is in danger," said right-leaning newspaper El Mundo in an editorial comment. Left-leaning El Pais said the conservative Popular Party, which polls suggest will win a general election in 2012, would do well to throw its weight behind the accord. "The PP would send a strong message of support about economic stability if it stated its intention to apply (the measures) when it is in power," it said. The government had promised to raise the retirement age to 67 with or without the backing of unions. The reform is expected to take effect from 2013. Spain is the latest European country to tackle pension reform as ageing populations and lower birth rates strain social security systems. Pensions could account for 14 percent of Spain's public expenditure by 2040-2050, compared with about 9 percent in 2010, according to economy ministry data. Last year was the first that Spain's pension system did not run a surplus. Analysts say the deal with unions may herald progress on other reforms, such as making collective bargaining less rigid.
